Daily Market Reports | Jun 23 2015
By Greg Peel
The Dow closed up 103 points or 0.6% while the S&P gained 0.6% to 2022 and the Nasdaq rose 0.7%.
Poised
The ASX200 stumbled its way quietly into the green and across the 5600 line yesterday on relatively muted trade following Friday’s big rally. With the Greek issue hanging thick in the air, investors were drawn to Australian yield stocks and away from cyclicals in a mixed bag of sector moves.
Utilities posted the biggest gain followed by the telco, with financials posting decent gains despite the drag from rumour-hit IOOF. Materials, energy, industrials and healthcare all closed in the red, as did a consumer staples sector which continues to be dragged down by Woolworths and talk of another German invasion.
Concession
No doubt spooked by the ever increasing flow of money out of Greece’s banks, Greek prime minister Alexis Tsipras put to Greece’s creditors over the weekend a deal which has eurozone finance ministers believing that perhaps by the end of the week, agreement could be reached. Instead of emerging from the meeting in an angry mood due to Greece’s failure to budge, as has been the case most recently, this time there was talk of a “credible and detailed” proposal.
And in a bizarre piece of theatre, the EU leaders, who had all hastily flown to Brussels for an emergency summit, sat down and discussed nothing.
They discussed nothing because there is nothing yet ready to discuss. Some eurozone ministers saw light at the end of the tunnel, given Greece had conceded to tax increases within its proposal, mostly for the wealthy. Others remain unconvinced, given there was no concession on the pension age, which has to date been a major stumbling block. But what at least emerged was small step in the right direction.
There will need to be further talks. The negotiations are expected to extend through the week as the people of Athens take turns in protesting against austerity on one day, and against a Grexit on another. Because further negotiations are required to tackle Tsipras’ detailed proposal, the EU leaders decided they would have to wait to see how it all goes.
Which suggests there was only one reason the leaders’ meeting was hastily organised to be held following the finance ministers’ meeting last night. Were the finance ministers’ meeting to yet again end in stalemate, the leaders would begin plotting the path for an orderly Grexit and containment of any fallout. Or if one wanted to be more sinister, one might suggest the leaders’ meeting was organised simply to scare Tsipras into believing Grexit discussions were indeed its sole purpose.
At a subsequent press conference, European Commission head Jean-Claude Juncker repeatedly responded to questions with a curt “that was not discussed”. Juncker suggested he trusted that a deal will be reached by week’s end. A deal will be reached, he said, because a deal must be reached.
So will the creditors meet Tsipras’ concessions with concessions of their own? One presumes this is what the prime minister is expecting. But while all might be looking promising this morning, there remains the small issue of any agreement between Greece and its creditors having to be put to the left wing majority Greek parliament, and to the sixteen parliaments of the other eurozone members. If Tsipras makes concessions that imply greater austerity, will the Greek parliament support them? If the creditors make concessions to Greece as a special case, will all the eurozone parliaments support them?
Just when we thought this movie might finally end with a bang, the projectionist is loading in yet another long and tedious reel.
Having fallen sharply in recent sessions, Europe’s stock markets took the glimmer of hope as a strong signal to rebound. Both the German and French indices soared 3.8%.
Watch this space.
Records
The positive mood flowed across the Atlantic and sent the Dow up 166 points by late morning. Aside from the Greek news, a 5.1% rebound in May for existing home sales, following a drop in April, was well received. It’s the fastest monthly sales rate since the last month of Obama’s first home buyer’s grant program back in 2009.
Wall Street did not manage to hold onto its gains nonetheless, and drifted off through the afternoon. However this did not stop both the Nasdaq and Russell 2000 small-cap index finishing in record territory. European markets may have suffered a deal of volatility on the Greek issue, but US markets have largely taken Greece in their stride.
There was obvious relief in global bond markets, which last week saw precautionary buying ahead of a possible Greek default. The yield on the German ten-year rose 13 basis points to 0.88%, and the yield on the US ten-year rose 9 basis points to 2.36%.
One might have expected the euro to respond in a similar vein to European stock markets, but instead the currency went on a wild ride last night on every snippet of information before settling largely unchanged against the US dollar. This would suggest the market had set itself long on a possible breakthrough being forthcoming. The US dollar index is up 0.3% to 94.36.
Which didn’t help gold. Gold found its way back to 1200 last week as the situation regarding Greece appeared to be deteriorating, so this morning it’s down US$14.40 to US$1185.90/oz.
Having enjoyed a level of support as a safe haven currency last week, the Aussie is down 0.6% to US$0.7728.
Commodities
Base metal traders were still waiting for the eurozone finance ministers’ meeting to break up as the LME closed last night, and Chinese traders were absent due to a holiday. Lead, zinc and nickel fell over a percent while the others posted smaller, mixed moves.
Iron ore fell US10c to US$60.60/t.
The oils were quietly stronger as West Texas rolled forward into the August delivery front month, realigning with Brent. WTI rose US27c to US$60.24/bbl and Brent rose US46c to US$63.43/bbl.
Today
The SPI Overnight closed up 21 points or 0.4%.
Is this all the local market needs to encourage another leg up towards the 5700 mark, having rebounded from under 5500 to just over 5600? Not that Bridge Street has been paying a huge amount of attention to the Greek drama. And the Greek drama, make no mistake, is far from over.
Locally we’ll see a March quarter measure of house prices today before the flashers jump out from behind the trees. HSBC will provide its estimate of China’s manufacturing PMI for June and Japan, the eurozone and US will follow.
Closely watched durable goods data will be released in the US tonight along with new home sales, house prices and the Richmond Fed activity index.
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